Markets Are Too Afraid to Bounce

Almost all of my overbought and oversold indicators that I apply to various indices and ETFs are screaming “oversold!” at the moment. One index in particular, the S&P 400 MidCap Index, stands out among the crowd. The MidCap Index, which has an ETF that trades under the ticker MDY, has been in existence since 1995. The chart below, courtesy of Yahoo, shows the performance of that index over the past 15 years.

If you are looking for an overbought/oversold indicator, the 21 day rate of change (ROC) indicator is a good one. Looking at the ROC for 2008, notice how the current readings are the third time this year that the ROC set a new record for negative ROC. Also, the current reading of -33.95 is more than double what had been seen prior to this year.

With all of the oversold extremes, there will certainly be at least a short-term bounce soon. The fact that it has not happened yet is particularly interesting and means that more rocket fuel is building up for that bounce. For now, however, the failure to launch says as much about the investor psyche as anything else. Only in a market with a VIX approaching 60 would you see a market be too fearful to bounce.

Comments

[Smarty_Pants:]

Alternate theory: The market has a good reason to be so scared.

Just a thought. Maybe it's actually worse than everyone hopes but are too frightened to ignore.

Time will tell I suppose.

2008 Oct 09 12:24 PM

[bobomite:]

Maybe there is so much government debt, company debt and private debt that the debt-based money system we have been using is simply in collapse.

Sort of like Iceland, who are about to declare national bankruptcy. They might be the first but I will be surprised if they are the last.

2008 Oct 09 12:53 PM

[SHARON T.:]

the cowards will wait for the the brave to buy, after market runs for 50% higher, they'll tell you the water is good.

after you follow them, the market will correct again.

talking heads are cowards.

i'm 100% invested as of now.

2008 Oct 09 01:08 PM

[Vancan:]

Can anyone tell me how to find the company stocks held in MDY? Yahoo only gives the top 10, but the top ten comprise less than 10 percent of MDY stocks.

Thanks

2008 Oct 09 02:16 PM

[Urbane Gori...:]

Vancan ... You can go to Morningstar.com..They at least show the top 20.. They also give you the category and sector breakdown...

jegan

2008 Oct 10 11:06 AM